· Is Saakashvili Odesa’s Duke Richlieu or Iran’s Richard Helms? On May 30 Ukrainian President Poroshenko announced the appointment of former Georgian President Mikhail Saakashvili (aka “Misha”) as the new Governor of Odesa region. This surprise appointment comes just three months after Saakashvili’s appointment by Poroshenko as the Head of the International Council of Reforms. The Reforms Council post was a consolation prize for the former Georgian President who was initially offered the position of First Deputy Prime Minister but declined. Saakashvili’s reason for refusing the First Deputy Premier’s position was because it would have required him to give up his Georgian citizenship and take a Ukrainian passport instead. Since Saakashvili’s ultimate goal is to return to power in Georgia, this was not an option. Dual citizenship is not allowed under Ukrainian law, despite many Ukrainians – and especially government officials – possessing more than one country’s passport. In addition, one of Saakashvili’s key issues against his arch rival Bidzina Ivanishvili, in the 2012 Georgian Parliamentary Election, was that Ivanishvili held three passports: Georgian, French and Russian. This led to Misha’s political impulsive decision to strip Ivanishvili’s Georgian citizenship a year before the Parliamentary election to prevent him from running for office. Under political pressure from the US, and at a time when his party seemed likely to win the Parliamentary election, Saakashvili had the Georgian Parliament pass a law allowing the Prime Minister to be selected regardless of nationality. Under changes to the Georgian Constitution made late in Saakashvili’s presidency, all major powers were shifted to the Prime Minister and away from the term limited presidency (as Saakashvili had already served his two terms). The clever Georgian President’s plan was to win the Parliamentary election in October 2012 and be appointed as the new Prime Minister. However a late breaking scandal resulted in Ivanishvili’s Georgian Dream party soundly defeated Saakashvili’s United National Movement by a 55% to 40% margin nationwide. Stunned by the defeat, Misha then restored Ivanishvili’s Georgian citizenship an insurance policy for his own legacy and future ambitions.
According to insiders at the Secretariat, Saakashvili accepted Ukrainian citizenship on Thursday, May 28. This development suggests that Saakashvili still plans to return to Georgian politics as a future Prime Minister. It also begs the question about whether or not he will actually give up his Georgian citizenship to legally become a Ukrainian citizen. Again, Ukrainian law does not allow for dual citizenship and other ministers such as Jaresko, Kvitashvili and Abromavicius have had to renounce their foreign passports. Will Saakashvili also adhere to the letter and spirit of Ukrainian law – or be held to a different standard? Or perhaps Poroshenko and Saakashvili are counting on a loophole in Ukrainian legislation which allows for a one year transition process before the old passport must be denounced and the new Ukrainian passport takes effect? The other intriguing question is whether or not the Georgian government led by Ivanishvili’s protégé Prime Minister Irakli Garibishvili, will take revenge on Saakashvili by stripping him of his Georgian citizenship for holding a foreign passport. Garibishvili has lobbied Poroshenko against appointing Saakashvili to any high level official posts in the Ukrainian government, and normally very close relations between Ukraine and Georgia are at a record low. The Garibishvili government has also been pushing a criminal case against Misha relating to his breaking of protests in November 2007, and this appointment further undermines any remote hope that the current Georgian government has of prosecuting the former President. Of course the irony is that Saakashvili now accepts a foreign passport even though he once stripped his arch rival of citizenship for such an “offense”. Fortunately for him, the law changes he helped pass allow for such duplicity.
In appointing Saakashvili as Odesa Governor, it would appear that Poroshenko has assigned a strong leader to govern a key region under pressure by the Russians. Faced with a tough decision among at least four Odesa political figures (Eduard Hurvits, Oleksiy Goncharenko, Ivan Plachkov and Volodymyr Kurennoy) that could potentially shift the balance of power amongst competing business interests in the region – Poroshenko opted for an outsider. It should be noted that another Odesa outsider and a leader with a record of fighting Russian influence, Serhiy Kunitsyn (the twice Prime Minister of Crimea and former Sevastopol Governor), was also on the short list of candidates for the post. However none of the short listed candidates have the international profile of Saakashvili. Perhaps more importantly, since it is oligarch Igor Kolomoyskyi who is losing his hand-picked Governor in the region, Saakashvili’s appointment gives Kolomoyskyi a “soft landing”. This is because the oligarch’s “Privat Group” of companies invested heavily in Georgia under Misha’s presidency and was pleased with the relationship.
The appointment of Saakashvili as Odesa Governor has mostly been interpreted as a desire on Poroshenko’s behalf to implement reforms in the troubled region. A recent poll by the International Republican Institute (IRI) of each region of Ukraine showed Odesa as consistency among the worst in terms of corruption, nepotism, and communal services. Though almost all regions received poor marks in these categories, Odesa was particularly bad. Given the regions’ strategic importance to Ukraine’s national security and economy, the numbers suggest that Odesa could flip to the Russian side if adequately persuaded. Thus, some sources are suggesting that Saakashvili will make Odesa a test case for reforms: ‘if reform can happen in Odesa, it can happen anywhere’. This would complement Misha’s credentials as a reformer by duplicating his Georgia success – but in the rough and tumble of Odesa politics. Hitting a home run in Triple AAA Scranton is one thing, hitting a home run in Yankee Stadium is another…Additionally, Saakashvili as a strong Governor could presumably guarantee a free and fair election in the pending electoral rematch this fall between incumbent Odesa Mayor (and Kolomoyskyi ally) Gennadiy Trukahnov, and former three term Mayor Eduard Hurvits. Word on the street is that Misha’s Governorship is on a trial basis till the end of the year. This is both to ensure a fair election in October Mayoral contest as well as to test Saakashvili’s ability to hit a Major League curveball (i.e. translate successful reforms in Georgia into Ukrainian realities). Meanwhile, Misha supporters are already giddy will the prospect of a successful Odesa governorship leading to his replacement of Yatsenyuk as Prime Minister early next year. While that possibility is speculative at this point, it does prove the old adage that in Ukraine, “anything is possible”.
Presumably Saakashvili will continue to Head the International Council of Reforms as well as serve as Odesa Governor –although it is not clear at the moment. The Council of Reforms has an impressive list of accomplished Board Members, although it is not yet evident if they will have any real influence on the reform process in Ukraine – or if the Council is merely window dressing for Western loans and investment. Board Members that accepted the appointment including former Swedish Prime Minister Carl Bildt, the Chairman of the Committee on Foreign Affairs for the European Parliament Elmar Brok, former Slovak Prime Minister Mikulas Dzurinda, former twice Prime Minister of Lithuania Andrius Kubilius, American economist Anders Oslund and Jacek Saryusz Wolski a Member of the European Parliament. However Senator John McCain declined the offer to join the council and perhaps therein lies answers to Saakashvili’s appointment to Odesa. Two weeks ago, Saakashvili’s announcement that he had appointed US Senator John McCain to the Reforms Council resulted in the Senator stating publicly that he knew nothing about the appointment. While Senator McCain politely thanked Ukraine for the offer, he declined citing Senate rules which forbid such moves. However behind the scenes, Saakashvili had included McCain’s name on the list of members (without the Senator’s consent) while assuring Poroshenko that McCain had agreed. Following Poroshenko’s signing of the decree appointing McCain, and subsequent embarrassing decline by the Senator, Poroshenko was then privately scolded by the US State Department for the blunder. In most likelihood it was Saakashvili’s desire to impress Poroshenko that led the Georgian to assume his strongest supporter in the Senate would agree to the appointment. Regardless of the motivation, it flustered President Poroshenko and revealed Saakashvili as either careless at best – or deceptive at worst. In addition, Misha’s well known personal excesses are believed to be an ongoing source of tension with Poroshenko at a time when the country is at war.
Longtime observers of Ukraine know that nothing is ever as good or as bad as it appears at the moment – and rarely are decisions black and white. The appointment of Saakashvili could be interpreted in two ways -both with relevant historical precedents. The best precedent is that of Duke Richlieu…In 1803, the city of Odesa was just nine years old when Duc de Richlieu was appointed by his friend, Tsar Alexander I, as the Governor. Duc de Richlieu had been exiled from France during the French Revolution and had served as a Major General in Catherine the Great’s army during the war against the Turks. The appointment of a foreigner as Governor of Odesa was unprecedented in Russian history. Fortunately, Duke Richlieu’s experience at the French Court proved useful in effectively governing the new region, as well as growing Odesa to become the third largest city in Russia at that time. Today Richlieu is considered a founding father of Odesa and his statue sits at the top of the famous Potemkin Stairs. If Misha reforms Odesa in a similar manner as Richlieu governed the city, everyone in the country will be grateful and a Saakashvili monument should be erected on Deribasivska street in the near future.However, not everyone as is optimistic and another historical precedent might also predict the future for Misha and Odesa. In February 1973, President Richard Nixon abruptly sacked Richard Helms, the Director of the Central Intelligence Agency, and announced his new appointment as the US Ambassador to Iran. The move was as much surprising for its Machiavellian boldness as it was confusing. Helms was both demoted from a top post and assigned to another important post at the same time. While it was clear that Iran was a strategically important ally for the US at that time, the appointment of Helms as Ambassador (after serving as CIA Director) was clear demotion. At the same time, the appointment as Ambassador to Iran was of such importance that any real patriot could not refuse the mission. Success was mandatory and failure would lead to the rise of Islamic fascism. Helms did his patriotic duty and went on to serve as Ambassador to Iran until 1977. Within two years of Helms departure as Ambassador though, the Ayatollah Khomeni took power in Iran and the country became a mortal enemy rather than ally of the US.
In much the same way, Misha has been appointed to a strategically critical region – just like Dick Helms was to Iran. This appointment removes Saakashvili from the capital (and presumably the day to day decision making) and asks the obvious question: is it a promotion or is it an exile?
· The Oligarch Wars (Part 1): Firtash & Fertilizer: It was another mixed week for oligarch Dmitro Firtash. Firtash received positive news on May 20th when his company “Group DF” won an anti-dumping lawsuit against the Russian company EuroChem. The Ukrainian Supreme Court announced their decision on the two year old case over import duties on ammonia nitrate (fertilizer) and refused to satisfy the claims of EuroChem. Meanwhile however, the United States Justice Department proceeded with their case to have Firtash extradited. Last month a Vienna court refused the US request to extradite Firtash citing lack of evidence and jurisdiction issues. US Ambassador to Ukraine, Geoffrey Pyatt said, “The United States insists that Dmitro Firtash be brought to justice, and we continue to call for his extradition to face trial”. The Ukrainian government maintained their pressure on Firtash by issuing him a summons for questioning into allegations that his Ostchem company cost the country 5.7 billion hryvnas in losses. However Interior Minister Arsen Avakov upped the ante by appealing to the US Federal Bureau of Investigation (FBI) to participate in the investigation. “Given the materials on the damages to the state of Ukraine available to the investigators of the two countries, the Interior Ministry is ready to carry out joint investigative actions on the case both in the territory of Ukraine and in the United States” said Avakov. Any FBI involvement in the investigation will certainly tighten the noose around Firtash’s neck. The real question is, “what is the endgame?” Is the case against Firtash about fiscal justice, or is that case about what he knows about Vladimir Putin’s financial dealings? It could well be both…
· Oligarch Wars (Part 2): Akhmetov’s Coke Woes: Rinat Akhmetov also had a bad week when his Avdiyivka Coke-Chemical Plant was hit by 70 shells from Russian backed forces in Donetsk region. Avdiyivka, a town of about 35,000 people, was rendered without electricity and water by the two days of shelling. The factory is one of the largest in Europe and owned by the Metinvest company. Metinvest is jointly owned by Akhmetov’s Systems Capital Management (71%) and Smart Holding Group (24%). However, Smart Holding Group is owned by MP Vadim Novinsky, an Opposition Bloc Deputy who became a Ukrainian citizen during the Yanukovych presidency.
· Bondholder Bluffs: While negotiations between the Ukrainian government and foreign bondholders will not be completed by May 31 as originally planned, the Ukrainian side received a significant boost when US Treasury Secretary Jacob Lew stated that the holders of Ukraine’s debts may need to make sacrifices. Secretary Lew said, “…there is going to need to be a combination of commitment to make the kind of sacrifice for this to work and also enlightened self interest”. Lew went to praise Ukraine for its cooperation with the US, IMF and World Bank by adding, “…Ukraine continues along the path of economic reform…” This sign of support was backed up by the Group of Seven Finance Ministers at a meeting in Dresden, Germany this week. The show of solidarity for Ukraine should ultimately tip the balance in the country’s favor by forcing a group of bondholders led by Templeton Funds to accept a reduction in their principal investments (in addition to lengthened maturities and interest rate reductions). A proposal from the Templeton led group to lengthen maturities and accept no reduction in principal was flatly rejected by the Ukrainian government. Sources close to the negotiations noted that the Templeton plan would essentially raid $8 billion dollars of Ukraine’s National Bank reserves (provided by the IMF and several of the G7 countries) – hence the reason for Ukraine’s rejection of the proposal. In the meantime, both Raiffeisen Research and ING Bank lowered their forecast for Ukraine’s GDP to decline by 10% this year. The Ukrainian government and the European Bank for Reconstruction and Development (EBRD) expect the decline to be 7.5%. However this lower forecast is due mostly to the Donbass where industrial output has been slowed due to the war. More importantly for Ukraine though is that every major bank and analyst sees Ukraine’s economy growing in 2016. As Finance Minister Natalie Jaresko said, “We are gradually, but confidently, withdrawing from the crisis phase.” In other words, the worst of the economic recession may now be over.
· Arrests: Former Deputy Interior Minister Serhiy Chebotar was called for questioning on May 26 for suspicion of a committing a crime, but did not show up. So far no official charges have been brought by the Prosecutor General Office although Svoboda MP Yuri Levchenko accused him of corruption related to a family land plot. Interior Minister Avakov accepted Chebotar’s resignation on May 1.
· Personnel Moves: Former Head of the Effective Governance Foundation, Andriy Lobach has been appointed as the Head of the Project Office for Reform Development and Implementation in Ukraine according to the National Reforms Council. The Foundation for Effective Governance was a Rinat Akhmetov funded NGO that was closed last year. Lobach was selected out of 112 candidates.
Dates to Watch (for Ukraine unless otherwise noted):
June 2: Next Scheduled Meeting of the Trilateral Group & Working Sub-Groups in Minsk: Don’t expect any progress of course since in these OSCE sponsored meetings, Ukraine is outnumbered 3:1 by Russia, the DPR and LPR. Nonetheless the Working Subgroups are now meeting and at least discussing issues of security, humanitarian affairs, politics, and economics. Former Ukrainian President Leonid Kuchma will be attending on behalf of the country. One has to wonder that when Kuchma listens to the nonsense at these meetings, if he is thinking that serving jail time for involvement in the Gongadze murder might not be a lighter punishment…
June 2-5: Parliamentary Voting Session Scheduled
June 7: Mass Protests Planned in Moldova: Demonstrations in Chisinau on May turned out an estimated 40,000 persons to protest the banking scandal and general anger at the government. This rally rivaled the size of the April 2009 protest which ultimately toppled the Communist government. Now the protest organizers are planning a follow up rally on June 7 and predicting a turnout of 100,000 persons. With Chisinau’s population of 665,000, that would be 15% of the entire capital – if the rally reaches that size. Regardless, this government’s days in the current format are numbered.
June 14: Moldovan Local Elections
June 16-19: Parliamentary Voting Session Scheduled
July 1: Date Decentralization will be approved by Parliament according to Speaker Groisman
July 1-3: Parliamentary Voting Session Scheduled
July 14-17: Parliamentary Voting Session Scheduled
July 26: Special Parliamentary Election in District #205 (Chernihiv City): The vacancy to fill Valeriy Kulich’s seat in Parliament already has a frontrunner. Gennadiy Korban, the Chairman of the Board of Slavutych Capital and a Ukrtatnafta Supervisory Board Member, appears poised to enter the race. Korban, a Dnipropetrovsk native and close friend of oligarch Igor Kolomoyskyi, is worth an estimated $150 dollars. His entry into the race complicates the chances for the Poroshenko Bloc to hold the seat in the election. Valeriy Kulich, whom Poroshenko recently appointed as Chernihiv Governor, won the district 28-14% over his nearest opponent in last October’s Parliamentary Election. If Korban is elected, it is probable that he will join Kolomoyskyi’s Renaissance faction in Parliament which currently has 22 members.
September 23: Ukraine must repay $500 Million in Foreign Debt
October 25, 2015: National Local Elections for Mayor and City Council
February 2016: Stockholm Arbitration Hearings on Counter Claims between Naftogaz and Gazprom. Naftogaz is seeking $16 billion dollars and a decision is expected in June 2016. Gazprom claims Naftogaz Ukraine owes it a total of $29.5 billion dollars but is seeking in court “just” $8.2 billion.